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AAPA Shifting Trade Patterns An Ocean (Container) Carrier’s Perspective
January 2015
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Today’s Agenda
Review the present Take a look back at proved to be a
pretty good year by….. container shipping standards Speculate on where we may be headed
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The Container Shipping Industry Today
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• Roughly 400 companies • Operating 5,000+ ships (fully cellular) & 18+M TEUs of
capacity • Concentration: 16 of the top 20 lines belong to a consortia • Profitably investing in capacity and delivering reliable
service remains a daunting challenge • The 20,000 TEU barrier has been cracked—reportedly!
The Global Container Shipping Industry Today
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18.2
17.3
-0.4
1.5 0.2
-5
0
5
10
15
20
Jan-14 Deleted Added Jan-15
TEU
s (M
illio
ns)
IdleActive
How did we get here?
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Concentration: 16 of the top 20 lines participate in consortia
2 M Ocean 3c CKYH+E G6
.
(1)
(2)
(3)
(8)
(19)
(6)
(9)
(15)
(18)
(4)
(5)
(9)
(10)
(12)
(13)
(15)
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Who is Left?
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Who is Left?
(11)
(16)
(19)
(20)
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The Container Shipping Industry: A look back at 2014
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Fuel cost reductions alone should drive the industry to full year profitability
-$100$0
$100$200$300$400$500$600$700$800
Mill
ions
of U
SD
Global Container Industry Net Profit/Loss by Carrier YTD 2014 (Q3)
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2014 was a year of significant developments
Cheap fuel The gray ship A new regulatory voice Hapag-CSAV transaction Big ships-a potential downside
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Cheap Fuel: a windfall
Rotterdam 380 cst
0
100
200
300
400
500
600
4Q13 4Q14
Reported Price Context
• A 49% decline in one year although the full benefits have not been realized
• Offset higher operating costs & low sulfur fuel premiums
• Today’s prices approximate 2005
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The gray ship was an innovative concept that could have transformed the industry
The Gray Ship • Concept similar to the
1960s-1970s Latin American pooling agreements
• P3 significantly improved upon it by focusing on capacity
• Third party operator and mandated cost recovery addressed the industry’s chronic challenge
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A new regulatory voice derailed the gray ship concept
P3 Regulatory Math
US FMC
EU Competition Directorate
China Ministry of Commerce
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2014 Transactions: is it a trend?
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Big ships---potential waterside…..
7,400 ship moves with six cranes @ 35 mph =: • Minimum 35 working hours • About 40 berth occupancy hours
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& ….. landside downsides
7,400 ship moves with a 40% intermodal split =: • About 8-10,000 TEU storage slots (30-37
medium density RTG storage acres) • 14-15 DSTs (20 cars each) • 5,700-5,800 gates moves @ 1.3:1.0
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The Container Shipping Industry A look ahead to 2016 and ……
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One thing will never change: The global profitability equation
System scale economies + Increased Efficiency + Higher Utilization + Balanced supply & demand = Improved profitability
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Never make predictions, especially about the future” [Casey Stengel]
The Fleet Networks Operations Regulation M&A
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1.9
21.0 18.4
-0.5
1.2
-5
0
5
10
15
20
25
Jan 2015 Fleet Scrapping Additions Jan 2017 Fleet
TEU
s (M
illio
ns)
2015 2016+
The Future Container Fleet
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The 20,000 TEU ship may already be here
• Adding a tier in the hold and on deck increases a 19,000 TEU ship to 20,000+ TEUs
• Increasing the beam one row can increase capacity to 21,000+ TEUs
Evergreen ships would have a nominal capacity of almost 20,500 TEUs through such design adjustments while keeping the basic dimensions unchanged from an 18,000 TEU vessel
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• 2015-2016: Likely Evolutionary vs Revolutionary • 2017: Hemispheric
– Asia-USEC via Panama: on average a 7,500-8,000 TEU ship will be a big ship; potential reductions in Suez services
– Asia-US Gulf: combination of more strings; larger ships consistent with feeders & Houston’s capabilities
– Asia-ECSA: 8,000+ westbound via Cape of Good Hope – Asia-WCSA: increased feeder operations
Hemispheric Networks
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• Slow steaming is likely to (should, must) continue • Direct port calls by big ship strings will likely become
more concentrated • Hemispheric feeder operations are therefore likely to
increase – Caribbean Basin, Central America, NCSA, WCSA (Ecuador/Colombia),
intra-Brazil, US Gulf
• Terminal automation will be critical to realizing big ship scale economies
Operations
Page 23
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Regulation: a wild card • The simple math says: As concentration
tightens supply, regulatory scrutiny will increase
• The political wild card is the unknown • What if:
– COSCO/CSCL merge? – CKHYE/Ocean Three become the W8-
9? – The Japanese Lines consolidate under
a government supported initiative? Former FMC Chairman Lidinsky (2014) called for and both the China
Ministry of Transport and the EU Competition Directorate enthusiastically supported his call for a second global summit on the impact of super alliances and the challenges they pose to regulators
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M&A: valuations, ROIs and regulators are the barriers
The big continue to swallow the niche & regional?
Independents (non-aligned): merge or are acquired
Consortia increasingly cooperate Japanese & or Korean lines
consolidate A major (two top 10s)
transaction
PROBABILITY Plausible
Unlikely
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Today’s Agenda in review
• Review where we are at: arguably I at least accomplished this
• Take a look back at what proved to be a pretty good year by: tough to argue with unsubstantiated facts
• Speculate on where we may be headed: hopefully kept most everyone awake and maybe even provoked some thought
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AAPA Shifting Trade Patterns An Ocean Carrier’s Perspective
January 2015
Thank You